5 Steps to Successful House Flipping
When it comes to investing money into fix and flip properties, it isn’t as easy as it looks on TV. Investing time and money into a property is a big risk, and when done incorrectly, it can cost a lot of money. However, there is a right way to flip houses and turn a profit. These 5 steps can help you turn your fix and flip loan into a solid payday.
1. Find Your Cash Source
The first step to flipping houses is to assess your cash situation. Do you have your own money to invest? How much funding will you need from investors? Will you have a partner assisting you with the funding? Identifying your commercial loan options will be key.
Once you determine how much cash you have on hand, you’ll need to identify potential homes to flip. Determine an investment range you feel comfortable with because the value of the home you choose, will determine how much money you’ll need to borrow from an investor. Keep in mind, it’s wise to have at least 10% of the project plus closing cost, and that you’ll need cash on hand for monthly payments.
2. Build a House Flipping Team
There are too many moving parts in a house flip to do it alone. You need to build a team of trusted specialists who can help you see the process from beginning to end. These specialist will help guarantee your real estate investment flip is not a flop.
Specialists you should have on your team include real estate agents, a private or hard money lender, a general contractor, an accountant, an insurance agent, and an architect. Each of these members can help see you through the financing and rehabbing of the home ultimately saving you time and money. Before deciding on what type of lender to use make sure to understand the difference between a private commercial lender vs. bank loans.
3. Locate the Right Property
Finding the right property for your first time fix and flip investment isn’t easy. However, by conducting research on a targeted geographic area, you can save yourself time. Using the real estate agent on your team is the best way to go about finding the right property. A real estate agent can help you determine properties that won’t need extensive repairs to increase in value.
You can also do your own research into fix and flip properties. One way is to take a look at foreclosed and bank-owned properties in geographical areas that may be appreciating. Another way is to reach out to property owners via email to see if they’re willing to sell their homes for the right price. Both of these methods are best utilized by experienced flippers, but it is something for beginners to consider.
4. Make Sure the Numbers Add Up
When flipping a home, the first thing you need to do is determine the After Repair Value (ARV). The ARV is the selling price of the home after all renovations. Your agent can help you determine this number by comparing the property to other similar recently sold properties.
Once you determine the ARV, subtract the projected purchase price, rehab costs, and all your monthly carrying costs. What you have left over is your profit. If your profit is not the desired amount, you have two options. One is to move on and evaluate other properties. Two is to reduce either your projected purchase price or rehab costs.
5. Be Timely and Efficient
The faster you can flip your property, the more profit you will make. The longer the house sits on the market, the longer you have to pay insurance, taxes, and any other carrying costs. These expenses can add up very quickly.
So to maximize the value of your house flip, you will need to manage the process. Having a strong team in place is necessary, but you can’t solely rely on your contractor to handle all of the repair process. Making sure they stay on time and on budget is essential to your success.
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